Important Edit: Someone just mentioned there seems to be no contract for minting TRX right now. I double checked the white paper and looks like the full mint and burn mechanism wont be implemented until November. Until USDD can be burned for newly minted TRX there is 0 chance of a failed mint and burn scenario similar to Terra / UST
Just pulled up the white paper for USDD. Seems that the “stability” mechanism for USDD is the exact same as UST.
Here’s the white paper so you can read for yourself https://usdd.io/USDD-en.pdf
Page 3 and 4 show very plainly what the mint and burn mechanism is. You don’t have to know much about any of this to understand it. Simply 1 USDD can be burned for $1 equivalent of TRX minted. $1 worth of TRX can be burned for 1 USDD minted.
Looks like right now USDD borrow rates on justlend.org are 5%
So if you want to short USDD with leverage here’s how to do it.
Deposit collateral on justlend.org – Eth, BTC, USDC take your pick Borrow USDD Immediately sell USDD for more collateral Deposit collateral Repeat steps 2 and 3 depending on how much leverage you want exposure too
The loan to value ratio on justlend will determine how many times you can repeat this process. Each time you repeat steps 2 and 3 you increase your leverage. So at 10x leverage every 1% move in either direction is a 10% gain or loss. You’ll want to figure out what the liquidation threshold is so you don’t lose your collateral.
Some of the more obvious risks in this trade are the APY you pay on borrowed USDD, not managing your collateral and getting liquidated, and also maybe a not so obvious one is since justlend runs on tron, its worthwihile to think about if USDD and TRX fail will Tron shutdown? In the event of a network shutdown you wont be able to repay your USDD and release your collateral.
There’s also a much easier way to short Tron and USDD in the event of a failure of the mint and burn mechanism. Just set an alert (or program a script if your savvy enough) and short TRX on a centralized exchange like Kucoin if USDD depegs to $0.97 then short TRX with leverage in your margin account. I’m sure you can find TRX perpetuals on other exchanges too if you want to increase your leverage. Then if USDD repegs you close the trade. Rinse and repeat every time USDD depegs.